By Linda Chiem

Law360 (April 23, 2021, 5:56 PM EDT ) A D.C. federal judge said Lyft's valid arbitration agreement dooms a driver's lawsuit seeking sick leave benefits amid the COVID-19 pandemic, finding that rideshare and ride-hail drivers aren't workers engaged in interstate commerce who'd otherwise be exempt from arbitration.

U.S. District Judge Ketanji Brown Jackson issued a 35-page opinion Thursday agreeing with Lyft Inc. that it had a binding and enforceable arbitration agreement with plaintiff Cassandra Osvatics and that Osvatics didn't fit the definition of interstate transportation workers to qualify for the Federal Arbitration Act's Section 1 exemption to keep her dispute in court.

Judge Jackson previously issued a brief two-page order March 31 granting Lyft's motion to compel arbitration — but didn't elaborate on her findings at the time — in Osvatics' proposed class action alleging the ride-hailing company's refusal to offer paid sick leave to thousands of drivers during the pandemic jeopardized public health and safety and left its drivers vulnerable to exposure to the novel coronavirus.

Osvatics argued in court briefs that Lyft couldn't hide behind an arbitration provision in its terms of service to escape judicial scrutiny for flouting the D.C. Accrued Safe and Sick Leave Act. But Judge Jackson wasn't persuaded by Osvatics' argument that she wasn't fully aware of what she was agreeing to when she accepted Lyft's terms.

Osvatics didn't contest the accuracy of Lyft's internal records or argue that she had insufficient notice of the arbitration provision, especially when she accepted Lyft's terms of service on four separate occasions, Judge Jackson explained. And Osvatics never asserted that she opted out of arbitration with Lyft at any point, according to the opinion.

"Unfortunately for Osvatics, it is black-letter contract law that contract formation depends on whether the parties 'objectively manifested a mutual intent to be bound contractually[,]' and that a party's 'actual, subjective intentions' are irrelevant," Judge Jackson said. "And it is clear to this court that Osvatics objectively manifested her intent to enter into a contract with Lyft by clicking the 'I Accept' button at the bottom of Lyft's Terms of Service. Thus, Osvatics' statements regarding her subjective intent are insufficient to create a material factual dispute regarding contract formation."

Notably, Judge Jackson also wasn't persuaded by Osvatics' argument that she and similarly situated Lyft drivers are interstate workers who are exempt from arbitration under Section 1 of the Federal Arbitration Act. Lyft had countered in court filings that the FAA's so-called transportation worker exemption doesn't stretch so far as to include ride-hail or rideshare drivers.

Section 1 of the FAA exempts from arbitration "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." But the statute does not define the phrase "engaged in foreign or interstate commerce," nor does it specifically identify which "class[es] of workers" count toward the exemption — leaving those issues to be heavily litigated in recent years.

But the litigation has yielded a mixed bag of court rulings related to gig-economy drivers. Judge Jackson referenced a half-dozen other decisions involving Lyft and fellow ride-hailing giant Uber Technologies Inc., saying a "majority of courts faced with this question have concluded that rideshare drivers do not fall within the Section 1 residual clause."

"This court agrees with the majority approach; accordingly, it finds that the arbitration agreement between Osvatics and Lyft is subject to the FAA," Judge Jackson said. "In reaching this conclusion, the court makes two subsidiary determinations: that the Section 1 exemption is not limited to transportation workers who transport goods rather than people, and that the relevant 'class of workers' must be assessed at a nationwide level rather than a specific geographic area."

The judge explained that for the purposes of the Section 1 exemption, "class of workers" must be defined at a nationwide level and should not be limited to a particular geographic area within the U.S. And in this case, Lyft drivers as a class are not "engaged in interstate commerce" within the meaning of Section 1 because they're primarily in the business of providing rides, according to the ruling.

"Unlike seamen and railroad workers, for whom the interstate movement of goods and passengers over long distances and across state lines is 'a central part of the job description,' Lyft drivers offer services that are primarily local and intrastate in nature," Judge Jackson said. "In other words, Lyft drivers are 'in the general business of giving people rides, not the particular business of offering interstate transportation to passengers.'"

It also doesn't matter that Lyft drivers often transport passengers to and from airports and train stations, before or after those passengers have themselves traveled interstate, according to the opinion.

"Simply stated, the mere transport of passengers to and from hubs of interstate travel, however frequently that may occur, is not enough," Judge Jackson said. "Instead, to be a class of workers that qualifies for the Section 1 exemption, there must be an established link between such intrastate rideshare trips and the channels of commerce that are designed to facilitate passengers' interstate journeys."

Osvatics, a Maryland resident, sued Lyft in May. But Lyft argued that drivers who sign up to use the Lyft app clearly agree to settle all of their legal disputes with the company through individual arbitration and that they're barred from pursuing any class actions. And Osvatics knew what she was getting into, Lyft said in court filings. Osvatics, who drove for Lyft from about November 2015 to June 2018, first accepted the company's terms of service on Oct. 4, 2015, then again on Oct. 30, 2016, May 4, 2018, and May 4, 2020, according to Lyft.

No stranger to employment-related litigation concerning their treatment of drivers, Lyft and its larger rival Uber have been hit with a rash of new or revised lawsuits over the past year that more aggressively challenged their policies concerning paid sick leave for drivers in light of the COVID-19 pandemic. Existing lawsuits primarily claiming that the ride-hailing companies are flouting state and local wage and hour laws by classifying their drivers as independent contractors instead of employees have since been rejiggered to also assert paid sick leave claims.

The Ninth Circuit is currently weighing an appeal involving a group of Massachusetts Uber drivers, whose lawsuit was transferred to the Northern District of California last year, seeking to reverse a California federal judge's May decision denying their emergency motion for a preliminary injunction that would've immediately forced Uber to reclassify its drivers as employees and grant them paid sick leave. In that case, the district court judge held that "Uber drivers do not perform an integral role in a chain of interstate transportation" that would make them exempt from arbitration under Section 1 of the FAA.

Osvatics' attorney Christopher M. McNerney of Outten & Golden LLP said in a statement to Law360 on Friday that he and fellow counsel are considering their next options.

"We are disappointed by the decision and are exploring options for next steps to vindicate the rights of our client and ensure enforcement of D.C.'s important sick leave protections," he said. 

Press representatives for Lyft were not immediately available for comment Friday.

Osvatics is represented by Christopher M. McNerney, Mikael A. Rojas and Pooja Shethji of Outten & Golden LLP.

Lyft is represented by Elaine J. Goldenberg, Rachel G. Miller-Ziegler, Rohit K. Singla and Justin P. Raphael of Munger Tolles & Olson LLP.

The case is Cassandra Osvatics v. Lyft Inc., case number 1:20-cv-01426, in the U.S. District Court for the District of Columbia.

--Additional reporting by Brian Dowling and Lauren Berg. Editing by Janice Carter Brown.

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